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When to Take Profits in the Cannabis Sector

Clive Maund |
Tuesday, 02 January 2018 08:40 (EST)

With a run-up in cannabis stocks, technical analyst Clive Maund shares his thoughts on when investors should take profits.

We are seeing such strong gains in our cannabis stocks that you may be wondering at what point we should take profits, especially as many of them are now technically overbought. However, we need to be very careful here not to get out too early. The key point to keep in mind is that what we are seeing here is not some common or garden rally. This is a sector that is just emerging from the shadows to become mainstream and is set to be the fastest growing sector in the world for the next several years.

The reason for the strong rally over the Christmas and New Year period is the news that the Feds have just lifted the ban on medical marijuana, which is a major milestone on the road to the sector becoming mainstream. The potential for growth in the medical marijuana sector is huge, since cannabis is an extraordinary herb with a wide range of curative and medicinal properties that is set to be incorporated into many pharmaceutical products, with great benefits for the entire population.

Recreational marijuana is set to become legal in California in the New Year and across Canada shortly thereafter, providing a further boost to the industry. Recreational marijuana is more controversial, because of its potential for abuse, and in this respect it is no different to alcohol. As investors or speculators it is not for us to pass judgment on the rights or wrongs of marijuana, especially as the benefits of it greatly outweigh the negative aspects, which is a lot more than can be said for the tobacco or the defense (war) industries.

The growth of the sector is expected to be so strong not just next year but for the next several years that it would not be surprising to see most of the stocks that we have gone for over the past month or two appreciate by a factor of 5 or 10 times, and in some cases more, because these are established companies that have already worked through the initial startup problems and arrived at a point of relative stability, and have achieved this during a period of adversity marked by severe regulatory restrictions that are now being lifted. This lifting of legal restrictions coupled with booming demand for both recreational marijuana products and marijuana based medicines, means that a period of very rapid growth lies dead ahead for the industry, which is expected to flourish.

What is therefore likely to happen to the stock prices of the better and more established companies across the sector is that they remain in strong uptrends to a long time, pausing only to consolidate for a while when they become extremely overbought, before advancing anew, and in this fertile environment many $1.00 stocks will become $10.00 stocks or more. We therefore have to be careful to avoid the temptation to take a big profit just because we have it, and only do so where a sufficient reaction looks likely to justify it, because the danger is that they may not react back much and then take off higher on another upleg without us.

We are concentrating on the cannabis/marijuana sector right now, because as you have seen for yourselves in recent days, this is where the big action is, and the big profits are to be made. Long-time readers who are more into gold and silver will be heartened to know that we are not taking our eye off the ball there either. Having bought a nice range of cannabis stocks in recent weeks, we can largely sit on them, and at the same time turn our attention to the better gold and silver stocks, for both gold and silver look like they are shaping up to do very well in 2018, especially because the shine is likely to come off cryptos, as more and more investors come to appreciate the risk of being swindled in this space.

Bitcoin looks like it's had its day. There was someone on Bloomberg this morning saying that Bitcoin holders will sell when they realize that they are going to lose their anonymity.

To conclude, we are perfectly well aware that many cannabis stocks are getting very overbought, but we must temper our normal desire to take profits with the knowledge that most of them are set to go much, much higher over the next year, very possibly to 5 or 10 times their current values, and possibly more. At times, we may take profits in some of them when they are so overbought that a reaction is almost inevitable, but our aim will be either to buy them back or shift into other stocks in the sector that are less overbought. An important point to close on is that we will be devoting more time soon to the Precious Metals sector, which is undervalued and expected to perform well in 2018.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years of experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Disclosure:
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CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stockmarket analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.

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